A Dead Cat Bounce

Through yesterday, March 26, 2009, the DJIA had gained over 21 percent from its recent bottom. That percentage move is enough to qualify for it for bull market status. While that’s likely to bring a big “Yippee” from stock investors, is this a trend or an end?

This was the Dow’s first gain of 20 percent in about a year-and-a-half. More specifically, since October 2007. As a result, folks are wondering if that nasty bear is on his way out of town, the bull has moved in or if something else is going on— particularly because the rise in prices happened so very fast: It’s the quickest 20 percent rebound since 1938, according to The Wall Street Journal.

Because nobody knows from moment-to-moment, month-to-month or year-to-year what’s going to happen on Wall Street, or for that matter within their own personal lives, the best we can do is to look backwards for insights about the future.

At the same time, most brokers and investment advisors are quick to remind prospective and existing investors that past performance is no indication of future results. That said, the market’s past record typically winds up being Wall Street’s strongest sales tool.

While sitting at Tire Kingdom yesterday, CNN was on the television and I starting talking about the market with one of the other customers in their waiting area. I asked if he had made any recent stock purchases. He had. I asked if he’d made any money on them. He had. And then I asked if he’d taken any of those short-term profits. To which he said, “Yes.”

That’s when the conversation turned to whether this was the beginning of a bull market or a return to a flat or bearish one. He figured the jump up was temporary.

The term “dead cat bounce” refers to a short-term recovery in a market that has experienced a long-term decline. It comes from the notion that even a dead cat will bounce if it’s dropped from a high enough point. (Cat lovers have to be cringing at the thought of that one.)

I’ve talked with more than one financial professional who think the recent rally has been just that. Perhaps they are right. Perhaps not. But no matter what, there are plenty of attractive opportunities in the market right now for the short- and long-term investor whether there’s a bull, bear or dead cat in charge.